The year 2019 began as a banner year for IPOs with many unicorns choosing to go public. With hopes of becoming the next Amazon AMZN or Facebook FB, many of these unicorn startups create a lot of pre-IPO hype.
Ridiculously high valuations when these companies are private, and expectations of a blockbuster IPO, make them hot picks for investors. The year 2019 started with a streak of tech IPOs from some of the most anticipated names. Social platform Pinterest Inc. PINS offered its shares at $19 each and closed the day at $24.40, registering a decent 28% gain.
On the other hand, Zoom Video Communications, Inc. ZM opened at $36 a share and closed the day at $62, registering 72% gain. Furthermore, seven biotech companies carrying valuations of more than $1 billion also went public between January and September. These companies have performed well so far, returning 14% on average.
Per IPOScoop.com, of the 114 IPOs in the United States in 2019, 63 had positive returns. However, the IPO craze seems to have fizzled out of late. Performance of the newly listed U.S. stocks is at its worst since 1995, a shocking reversal from the beginning of this year. Such a scenario has discouraged many companies from going public, leading to a number of delays in public offerings from prospective companies.
Does this mean that companies with plans to list their shares on American bourses will face difficult times ahead? Let’s find out.
What has kept investors worried is that startups that listed their shares this year have underperformed the S&P 500 in the year-to-date period. Tech startups, in particular, have seen share prices rise by as much as 5% above their offering price. In comparison, the broader S&P 500 has surged 18% year to date.
However, one should consider that weak fundamentals have had more to do with such lackluster performance. Furthermore, experts believe that weak performances from front runners like Uber Technologies Inc. UBER, Slack Technologies Inc. WORK and Lyft Inc. LYFT should be blamed on factors such as weak guidance and inflated valuations.
Having said that, there have also been some outstanding IPOs this year. If we look at visual the discovery platform Pinterest and food company Beyond Meat Inc. BYND, their share prices have registered decent gains since they went public. Analysts are of the view that valuation and guidance issues are likely to force companies to keep prices in check and investors could make use of such opportunities.
Further, companies that went public this year and did well in terms of price performance did so on the back of solid financials, positive cash flows and growing revenues. Looking at Q3 alone, about two-third of all the companies that listed their shares were either from healthcare of tech. The healthcare sector had 14 companies going public, and raising $4 billion in the process. Biotech and diagnostic companies led the gainers from the space.
On the other hand, there were 10 offerings from tech in the period, with $3.5 billion raised from the deals in Q3 alone. Notably, eight of these 10 companies had market caps north of $1 billion.
Valuation and guidance issues have resulted in a sharp turnaround from the beginning of 2019 for companies that have gone public this year. At the same time, these issues will keep prices lower for companies wishful of going public in the days to come.
Also, companies with strong fundamentals have not only bucked the trend to perform well under such conditions but also have bettered market expectations. Let us now look at some of the best IPOs of this year.
This company provides a video-first communications platform for video meetings, voice, webinars, and chat across desktops, phones, mobile devices, and conference room systems.
The company is based out of San Jose, CA and carries a Zacks Rank #3 (Hold). The company conducted its IPO on Nasdaq in April. The total IPO size was $751 million at $36 a share. The Zacks Consensus Estimate for the current year has improved 35.7% over the last 60 days.
This precision oncology company developing novel drugs to address treatment resistance.
Turning Pointis based out of San Diego, CA and carries a Zacks Rank #3. The company conducted its IPO on Nasdaq in April. The total IPO size was $167 million at $18 a share. The Zacks Consensus Estimate for the current year has improved 4.5% over the last 60 days.
This company manufactures, markets and sells plant-based meat products in the United States and internationally.
The company is based out of El Segundo, CA and carries a Zacks Rank #2 (Buy). The company conducted its IPO on Nasdaq in May. The total IPO size was $241 million at $19 a share. The Zacks Consensus Estimate for the current year has improved 13% over the last 60 days.
This clinical-stage biopharmaceutical company focuses on developing therapeutics for Alzheimer's disease and other degenerative disorders.
The company is based out of South San Francisco, CA and carries a Zacks Rank #3. The company conducted its IPO on Nasdaq in May. The total IPO size was $75 million at $16 a share. The Zacks Consensus Estimate for the current year has improved 14.2% over the last 90 days.